Zoe,the owner of Zoe's Bakery,determines that,at her optimal level of production in the short run,P AVC.In the short run,Zoe should:

Question

Zoe,the owner of Zoe's Bakery,determines that,at her optimal level of production in the short run,P < ATC and P > AVC.In the short run,Zoe should:

Quizplus · Accepted Answer

In the short run, if P<ATC, it means that the bakery is not covering all of its costs including the opportunity cost of the resources employed. However, if P>AVC, it means that the bakery is still covering its variable costs of production. Therefore, it is best for Zoe to continue to operate in the short run, even though she is taking an economic loss. This is because shutting down immediately would result in higher losses than continuing to operate.

Zoe,the Owner of Zoe's Bakery,determines That,at Her Optimal Level of Production